Without limiting the scope of the present invention, its background will be described with regard to trading common stock, as an example.
In trading common stock, there are three fundamental factors an investor must consider. These factors are what stock to trade, when to open a position in the stock and when to close that position in the stock. There are enumerable models that attempt to help the investor identify these factors each of which are based upon particular criteria. Some of the models are best suited for the long term investor using a buy and hold approach. Other models are better suited for the short term investor including, for example, the active investors that open and close positions in the same day or week.
In determining what stock to trade, a typical long term investor may perform substantial research into a particular company in an effort to evaluate the future success of that company. For example, a long term investor may evaluate whether the company has products or services that are likely to have an increase in sales, the effectiveness of a company's research and development, the profit margin of the company, the size and effectiveness of the company's sales organization, labor relations within the company, the quality of management personnel at the company, the competitiveness of the company in relation to other companies in the industry and long range outlook for profits.
In addition to these business related factors, the long term investor may look at factors such as whether the company typically pays dividends on common stock, the price to earnings ratio of the stock and the market capitalization of the company as well as earnings, revenue and net income of the company. On the other hand, an investor that is interested in short term investments may not perform such detailed research and instead may focus on factors such as volume of trades, proximity to a milestone such as a fifty two week high, difference between current volume and a historical volume, number of daily highs or money flow in identifying a stock of interest.
Once an investor has identified a stock of interest, the investor must then determine when to open a position in that stock. A long term investor might, for example, buy the stock regardless of price if it is being offered by a good company in a good industry banking on long term growth.
Alternatively, a long term investor may monitor factors such as business cycles, the trend of interest rates, governmental attitudes and the direction of inflation in making such a decision. The short term investor, however, may be more interested in such factors as the volatility of the stock or the liquidity of the stock in making such a decision.
The next step for an investor once they have opened a position in a stock is to determine when to close that position. A long term investor may, for example, make a decision to sell a stock based upon factors such as a fundamental change in a company that does not comport with the investor's original criteria for buying stock in that company, a change in management in the company, under performance of the stock, the stock reaching an unacceptable low, a belief that the stock has peaked or simply a belief that another investment has better long term prospects. While some of these factors may also be important to a short term investor, a short term investor may focus more heavily on such factors as the continued momentum of the stock or simply making certain all open positions are closed by the end of a day.
Regardless of the investment strategies, however, these three factors, what to stock to trade, when to open a position in that stock and when to close the position in that stock remain key elements in any successful investment strategy. Therefore, a need has arisen for a system and method for identifying stocks that meet specific criteria selected by the investor. A need has also arisen for such a system and method that allows the investor to execute trades in those stocks that meet the investor's criteria.